I. When the question requires a supply or demand graph, you are required to draw the graph(s) to answer the question. Do not forget to label your graphs completely and correctly.
II. If the question has multiple parts, like a, b, and c; you need to draw a graph for each part that requires one and separate your answers as a, b, and c.
III. When you draw graphs, you are also required to label them completely in order to earn full credit for your answers.
Separate your answers with their question number.
Question 1: Patrick owns a bagel business in Seattle and he wants to increase his total revenue. He knows that when bagels are $1.00, he sells 250 an hour, and when lowers the price to $0.75 he sells 275 an hour.
a. Using the midpoint formula and showing your work, calculate the price elasticity of demand for Patrick's bagels.
b. Using the price elasticity of demand for Patrick's bagels, explain whether he should raise or lower the price to generate more revenue.
c. Andrew's bakery moves in across the street from Patrick's shop. Explain what is likely to happen to the price elasticity of demand for Patrick's bagels.
Question 2: If we know that the price elasticity of demand is:
a. 5, graph the demand curve.
b. 0.5, graph the demand curve.
c. infinite, graph the demand curve
Question 3: A firm knows that the price elasticity of demand for its service is 0 (zero).
a. Graph this demand curve.
b. What should the firm do to the price of its good to raise total revenue?
Question 4: In a recession, there are many unemployed workers. Employers find that when the price of labor is $9.00, the quantity supplied is 200 workers. When they lower the wage to $8.50, 175 workers are willing to work.
a. Using the midpoint formula and showing your work, calculate the price elasticity for workers.
b. Over time, technology becomes more efficient as a substitute for workers. What happens to a firm's demand for workers? Explain.
I. When the question requires a supply or demand graph, you are required to draw the graph(s) to answer the question. Do not forget to label your graphs completely and correctly.
II. If the question has multiple parts, like a, b, and c; you need to draw a graph for each part that requires one and separate your answers as a, b, and c.
III. When you draw graphs, you are also required to label them completely in order to earn full credit for your answers.
Separate your answers with their question number.
Question 1: Patrick owns a bagel business in Seattle and he wants to increase his total revenue. He knows that when bagels are $1.00, he sells 250 an hour, and when lowers the price to $0.75 he sells 275 an hour.
a. Using the midpoint formula and showing your work, calculate the price elasticity of demand for Patrick's bagels.
b. Using the price elasticity of demand for Patrick's bagels, explain whether he should raise or lower the price to generate more revenue.
c. Andrew's bakery moves in across the street from Patrick's shop. Explain what is likely to happen to the price elasticity of demand for Patrick's bagels.
Question 2: If we know that the price elasticity of demand is:
a. 5, graph the demand curve.
b. 0.5, graph the demand curve.
c. infinite, graph the demand curve
Question 3: A firm knows that the price elasticity of demand for its service is 0 (zero).
a. Graph this demand curve.
b. What should the firm do to the price of its good to raise total revenue?
Question 4: In a recession, there are many unemployed workers. Employers find that when the price of labor is $9.00, the quantity supplied is 200 workers. When they lower the wage to $8.50, 175 workers are willing to work.
a. Using the midpoint formula and showing your work, calculate the price elasticity for workers.
b. Over time, technology becomes more efficient as a substitute for workers. What happens to a firm's demand for workers? Explain.
